Should You Use Kickstarter to Fund a Restaurant?

Two years ago, when Keavy Blueher and Allison Kave were each food business owners schlepping around New York City to deliver baked goods, they dreamed up a beautiful future together: One where they could serve Blueher’s cupcakes and Kave’s pies in a single, fantastic place. One where not coffee but cocktails would accompany the sweet treats. In a borough that has seemingly every food possibility, Butter & Scotch would be Brooklyn’s first dessert and craft cocktail bar.

In October, they asked the Internet for $50,000 to help make their dream a reality. Blueher, the owner of Kumquat Cupcakery, and Kave, of First Prize Pies, had already gone to private investors, but were short of the money they needed to open their new business (Kave and Blueher declined to provide overall startup costs on the record). “We were definitely feeling like we had exhausted most of the contacts that we had,” Kave said. They researched bank loans, Small Business Administration loans, and loans from direct lenders to make up the rest of their financing, but were reluctant to take on debt. So, like so many restaurateurs before them, they decided to try Kickstarter.

And, like so many restaurateurs before them, they discovered that Kickstarter is not magic.

Not that they weren’t successful. In fact, Kave and Blueher beat their $50,000 Kickstarter goal by $1,618. But over half a year later, Blueher, a former portrait artist, was still working her way through the stack of rewards—custom portraits—she owed her backers. The portraits only take about 30 minutes to produce, but around 50 people paid for them, and Blueher was simultaneously building out Butter & Scotch’s new space, producing baked goods for wholesale and market sales, and catering during the busy wedding season. (As of July 1, she had five portraits remaining.) And the campaign and reward fulfillment were just two of many time-consuming tasks associated with opening the business.

Since 2009, Kickstarter has offered the attractive possibility of cutting the strings that accompany traditional restaurant funding: bank loans accruing interest, private investors who have to be regularly updated on the business’s finances, who pop by to ask questions and weigh in on menu items, and who take a cut of the profits. Along with similar crowd-funding websites like Indiegogo, it gives entrepreneurs the chance to connect directly with potential customers. (Full disclosure: I work at a crowdfunding site for journalism, Beacon Reader).

Blueher’s Kickstarter portraits.

But successful crowdfunding requires time and often, surprisingly, financial investment, at a point in most restaurateurs’ careers when both are in short supply. In a world where simply asking for money to make potato salad can bring in over $50,000, as it did in a recently-viral Kickstarter campaign, the money more often flows much less freely. Usually, you have to work for it.

So, would-be restaurateurs out there, is it worth venturing into this brave new world of crowdfunding to bypass or augment more traditional means of financing your dream? Here are some questions to guide you through the decision:

1. Kickstarter: How does it work?

Aspiring business owners and artists use the site to raise money for projects that succeed or fail depending on whether they meet a self-set funding goal over a set number of days. The money comes with no strings attached (i.e., contributors are not investors), other than rewards offered to entice prospective donors during the campaign, like T-shirts and comped meals. Kickstarter itself also takes a cut of the funding, plus payment processing fees.

The use of Kickstarter for restaurants is on the rise, CEO Yancey Strickler told Eater in a March interview. As of publication, there are 8,201 food projects—ranging from sous vide cookers to cookbooks, food trucks to full-blown restaurants—listed on the website.

2. Wow, that sounds easy, right?

“It costs a lot more money than you imagine it will, and it costs an amazing amount of time,” said Iso Rabins. Rabins threw four events, including a ramen night and screening of the movie Tampopo, during his Kickstarter campaign to raise $150,000 for Forage Kitchen, a food co-working space in the San Francisco Bay Area. He offered 2-for-1 tickets to dinners at his underground supper club, The Wild Kitchen, to backers—and ended up giving away $70,000 worth of tickets.

When asked how many hours a day he spent on the campaign, Rabins said, “All day. Totally, absolutely a full-time job. It was crazy.” He estimates he sent 60,000 emails to meet his goal.

3. Okay, but if I run a successful campaign, at least I won’t have private investors breathing down my neck?

Maybe! But opening a restaurant is incredibly expensive. Consider the case of Travail Kitchen and Amusements, a restaurant dedicated to “democratizing fine dining” in Robbinsdale, Minnesota. Travail raised $255,669 through Kickstarter in October 2013, making it the seventh best-funded food project ever done on Kickstarter. But Travail’s founders still had to find over $1 million through other sources to hit its budget.

What’s more, the Travail crew made avoiding private investment a key part of its business pitch. “Getting a private investor is against everything we stand for—we don’t want to compromise the food we serve, the crazy things we do, or how many seats we have to include in our space,” the co-owners wrote on their Kickstarter page, referring to the horror stories they’d heard from their peers about working with private investors.

Travail offered a “sexy chef” calendar starring its own to Kickstarter supporters.

“You hear, ‘I did it this way, and I should have never f—ing done it this way,’” said Mike Brown, one of the co-owners. “You think about it—and I’m not saying investors are bad—I’m just saying we didn’t want to do that. We didn’t ever want to deal with that.” The Travail owners raised the remaining $1.2 million they needed through personal funds, bank loans, and a $300,000 loan from the local Robbinsdale Economic Development Authority.

4. But Travail had a big budget. Can little old me just do a Kickstarter and be done with it?

It’s a select group on Kickstarter that crosses that threshold. According to an advanced search on the website conducted on July 17, only 28 of the 2,641 successful food projects on Kickstarter raised more than $100,000. That’s just over 1 percent. So you’ll most likely still be chipping in from your personal funds, family and friends, bank loans, and, yes, private investors.

5. What do private investors think of Kickstarter, anyway?

Many of the dozen businesses interviewed by Bon Appétit about their Kickstarter experiences said the crowdfunding campaign actually made it easier to attract private investors—because it proved there was some level of interest in the product they were producing or because the Kickstarter campaign brought press attention.

Erin Norris of Brooklyn’s Grindhaus turned to Kickstarter out of desperation. In 2012, Hurricane Sandy wiped out the four years of work and $70,000 she’d spent to open the cozy restaurant. “I have a really strong work ethic and I really don’t like asking for help,” she said. But, she says, growing up without much money meant she had no connections to the world of private investors, and had already tapped out her personal network in her first attempt at starting the restaurant.

Norris raised $19,855 on Kickstarter, meeting her goal of $17,000. (The rest of the $70,000 she made up with money from Restore Red Hook, a fund established to help the Brooklyn businesses affected by the hurricane, the Southwest Brooklyn Industrial Development Corporation, and her parents.) Grindhaus opened in December and has since received favorable reviews, most recently in The New York Times. Now that she’s on the map, Norris was able to secure her first meeting with a potential investor. “It’s the first time I’ve had access to anyone who could potentially put money [into] this project,” she said.

Interestingly, this was true even when the Kickstarter campaign failed. In November 2013, Ben Vollmar and his wife, Cassy, sought $60,000 in a Kickstarter campaign to open Flatlands Coffee, in Bowling Green, Ohio. They fell short, raising just $17,684.

Ben Vollmar talks about Flatlands Coffee for his Kickstarter video.

Still, Vollmar said, “we were able to gain and find additional people that wanted to invest just from that Kickstarter alone,” thanks to the community and media attention the campaign brought. (“Before even trying a sip of their coffee, you’ll see the commitment to quality and innovation,” the Toledo City Paperwrote in a piece on the Kickstarter effort.) They subsequently attracted four additional interested investors, which helped them lower their goal in their second Kickstarter to a more manageable $20,000, which they successfully raised in June.

After Kickstarter’s fee of 5 percent, payment processing fees, and fulfilling rewards like mugs and T-shirts, Vollmar estimates Flatlands Coffee’s share will ultimately be around $10,000. Having that money in the bank, though, helped them then get a low-interest, government-subsidized loan. For Flatlands, Kickstarter wasn’t a way to get around investors; it was a way in.

6. So why bother doing a Kickstarter if I still have to jump through all these other hoops?

For some, it’s not about the money at all: It’s about spreading the word about a new restaurant. “If your only reason for doing it is funding, then you might find out that all the work involved in the fulfillment [of rewards] is actually more labor-intensive than raising the money through more traditional investment sources,” said Andrew Barnett, who raised $11,560 to open Linea Caffe in San Francisco in June 2013. He offered T-shirts, meals, cookbooks, cups, and coffee to his Kickstarter backers.

“To me, what the real value was is it’s a way of building community, and I think it’s a way of getting the word out about what you do. It’s marketing, I guess, but the marketing is the community aspect of it,” he said. The people who backed him on Kickstarter feel a sense of ownership over the business, Barnett said.

This aspect can soften the blow when a Kickstarter campaign comes up short, like Greg Lutes’s $50,000 pitch for a new restaurant in San Francisco’s Bernal Heights neighborhood focused on New American and Californian cuisine.

“Fifty [thousand] was a stretch—and I really have to say it was just a misjudgment of what we felt the response would be … and maybe a misjudgment of what my reach was, and network on social media and stuff,” Lutes said. His campaign ultimately brought in $30,965 by the June 27 deadline, none of which he’ll receive, thanks to Kickstarter’s all-or-nothing policy. Lutes plans to launch a new Kickstarter with a lower goal in coming weeks. “Ultimately, it’s about getting people to know about [the restaurant],” he said.

7. What is it actually like to run a Kickstarter campaign? Besides time-consuming, I mean.

For some, there’s a discomfort that has to be overcome before the project can launch. Melissa O’Donnell had run Salt and Salt Bar in New York City when she decided to open Thelma on Clinton, a restaurant that would “celebrate the food and culture of the Lower East Side.” “I was originally really against it,” she said of Kickstarter. “My initial thing was, ‘I don’t want to get on the Internet and ask for money. That’s tacky.’” Some people told her they thought it was tacky to crowdfund for a for-profit business, too—after she launched the campaign.

O’Donnell came around to the idea by focusing on what people were getting in return for their donation. “I’m giving them dinners and rewards, so it’s not like I’m really just asking for charity,” she said. She raised just over her $50,000 goal.

8. Is Kickstarter more time-consuming than finding private investors?

The process of securing investors varies from restaurant to restaurant. For Flatlands Coffee’s Vollmar, a former business student, pitching to private investors wasn’t too hard. “I had a lot of training in [looking for private investors]—that wasn’t as stressful,” he said. “But Kickstarter was emotionally and, in so many facets, like the most stressful thing because you’re on that tight timeline and you know it’s all or nothing.”

Chuck Siegel of San Francisco’s Charles Chocolates met with between 100 and 125 potential investors, he estimates, when trying to secure funding to reopen his chocolate shop in 2012. Twenty-five of them became investors. He met with some individuals as many as a dozen times, he said. Other conversations were significantly shorter (“two conversations and some chocolate” can produce investor commitments when they come from the right source, Siegel said).

Kickstarter, on the other hand, tends to be universally intense—for a short period of time. “For 30 days, it’s actually a job,” Siegel, who ran a $50,000 campaign in October 2012, said. “You’re hitting refresh [on the page] every 30 seconds. It’s kind of insane how attached to the campaign you become.”

But, he added, “the Kickstarter relationship … is a very short-term relationship: Someone puts in money, the deal closes, and then you make the product and they receive it. [With] a traditional equity investor, where you really are forming a long-term relationship with someone … your business will be either an enjoyable, fun thing to manage or not in part based on the relationship.”

9. Gimme the TL;DR: Is it worth it?
Running a restaurant Kickstarter campaign requires baring your soul to the Internet for its approval—always a dicey proposition. The campaign might not work out. It might take more time and energy than expected, and cost you a good chunk of the money you wind up raising. But it might introduce you to investors you never had access to. It might even actually help you get to opening night. And there might be surprises along the way, as there were for Erin Norris: Because she didn’t feel right asking for money, she decided to give up one of her expensive habits—she quit smoking.